Richard Clarida on This Tricky Moment for the Federal Reserve

SPEAKER_1 (0:03)

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Tracy Alloway (0:20)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:24)

And I'm Joe Weisenthal.

Tracy Alloway (0:25)

Joe, I feel like it's fair to say there are a lot of weird things that have been going on lately. You know what the weirdest was for me recently?

Joe Weisenthal (0:33)

Go on.

Tracy Alloway (0:34)

Having the Fed meeting on a Thursday.

Joe Weisenthal (0:36)

Oh yeah.

Tracy Alloway (0:37)

That threw me off for that entire week.

Joe Weisenthal (0:39)

I thought you were gonna say the weird thing was having a Fed meeting two days after the election, but no, you're right. I was really confused just the fact that it was on a Thursday at all, setting aside the fact that it was an extraordinarily busy week, which was just last week.

Tracy Alloway (0:54)

I didn't realize how much of my sense of normality was in fact influenced by having the Fed do something on a Wednesday. But anyway.

Joe Weisenthal (1:02)

That threw me too.

Tracy Alloway (1:03)

So we just had a Fed meeting. We are recording this on November 12th, and clearly this is an interesting moment for the central bank.

Joe Weisenthal (1:13)

Totally. I saw a tweet today. I don't remember who it was from, so I can't give proper credit, or maybe it was a sell-side note. I don't know. Just words that I saw on my screen at some point. But I think what made this interesting is this moment, or maybe it was a tomb-doing note. Whatever. It was this moment where the Fed is still clearly in the sort of short-term data dependency. Are we going to see further progress on realized inflation and so forth? Watching the data, plenty of missed signals there. Meanwhile, the market is very seemingly focused on the medium-term and thinking a lot about Trump and the new fiscal and macro policies that will emerge under this administration. I thought that was a really good way to frame it, which is that right now there's two different timeframes that people are in and people are trying to resolve the two, and it makes for some very interesting times in macro, to say the least.

Tracy Alloway (2:05)

Yeah. I have to say, I do not envy policymakers on the FOMC at the moment, because they happen emphasizing the data dependency, as you said, but there is all that uncertainty about how the Trump administration is going to unfold and what its economic policies will actually look like. It seems really difficult to me to have to react to that from a monetary policy perspective. So basically, there are a lot of questions, lots to talk about, and who better to ask these questions of than a former Fed person? So we are going to be speaking with Richard Clarida, the former Fed Vice Chair, now Economic Advisor at Pimco, and a Professor of Economics at Columbia. Richard, thank you so much for coming on Odd Lots.

Richard Clarida (2:51)

I'm glad to be on the show. Big fan.

Tracy Alloway (2:53)

Oh, thank you. So, first of all, you know, last week, the FOMC meeting on a Thursday, I got to ask, when you watch those, are you sort of watching them like wistfully wishing you were there, or are you thinking like, oh gosh, this is really tough now?

Richard Clarida (3:09)

Well, it can be tough. Yeah, I was certainly involved during my four years there in thinking about and prepping for the press conferences. But yeah, I watch them as a Fed watcher now, and the chair has become quite polished and experienced in navigating what can be sometimes some choppy waters.

Joe Weisenthal (3:25)

By the way, Tracy, you didn't say it, but I believe Rich is the perfect guest.

Tracy Alloway (3:29)

Oh, I'm sorry.

Joe Weisenthal (3:30)

No, I just want to establish that I believe, in this moment, we are talking to the perfect guest, and then listeners are like, why didn't you call Rich the perfect guest? So I just want to make sure that both-

Tracy Alloway (3:38)

Was it truly an oversight on my part?

Joe Weisenthal (3:40)

Truly both Tracy and I consider you to be the perfect guest. So we had that 50 basis point cut in September, then we had the quarter point the week of the election. As I'm looking at the warp function on the terminal, expectation is for, there's 65% chance of a cut in December. So not a slam dunk, but that still seems to be the expectation. What do you give us as a Fed watcher, your current read on the crosswinds that the Fed is going? But let's start with the short term still, because then we can get into the medium term. The crosswinds that are happening right now as the Fed looks for the near term path of policy.